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  1. #1
    Member foxysfolkfaced23's Avatar
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    Default Interest Rates - Where to next?

    Selfishly thinking of my own situation, that being that I have recently purchased my first house, I would like to know other people's opinions on the interest rate for the next 5 years.

    I know it's impossible to know what will happen BUT still i'd like to see what others think will happen

    Some think we are due for a rates explosion (perhaps double digit rates) in 2+ years due to huge govt spending now to prop up the economy.

    Others think the economy is in such poor shape that rates will have to remain low for a long time yet to help the economy and any major increase in rates will kill our exports hurting us even more.

    My personal opinion is that rates will rise sooner than people expect - maybe in the next month or two and i am tending to believe they could go higher quickly.

    This being the case i'm thinking of fixing half of the mortgage for 5 years @ 7.95% and the other half for 2 years @ 6.09% - therefore if rates explode i will be protected somewhat, however if rates stay low then i can still reap some of the rewards.....

  2. #2
    Guru Dr_Who's Avatar
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    It is a hard one to pick.

    It is certain there will be inflation down the track. This is evident by the commodities market running way ahead of us. Some commodities have put on nearly 100% this year. Keep an eye on those unemployment rate. Once unemployment levels off, then it is time to fix those rates.

    The real question is when and not if. I am planning to review my mortgage and maybe fix for 3 or 4 years at the end of this year.
    Last edited by Dr_Who; 05-08-2009 at 03:53 PM.
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt either directly by abolishing large slabs of it, or indirectly by inflating it away.

  3. #3
    Legend minimoke's Avatar
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    Up!

    Don't know when or by how much and I don't fret it.

    I've just changed bank and fixed 2/3rds at 6.09% for the longest term. The other 1/3rd is at 5.99% on a revolving credit loan. All with no bank fees.

    I'll hammer the revolving credit over the next two years and not sweat the fixed. The revolving credit also gives me an immediate 5.99% net return on any spare cash I have. Obviously if interst rates do go up my return will be even better.

    No-one can tell you what rates will be in 2 years or five years so its not worth worrying about. The main thing is to have a plan, make sure its manageable, monitor during the term and reassess when the term is up.

  4. #4
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    Default How to go bust in a rational manner

    Quote Originally Posted by foxysfolkfaced23 View Post
    Selfishly thinking of my own situation, that being that I have recently purchased my first house, I would like to know other people's opinions on the interest rate for the next 5 years.

    I know it's impossible to know what will happen BUT still i'd like to see what others think will happen

    Some think we are due for a rates explosion (perhaps double digit rates) in 2+ years due to huge govt spending now to prop up the economy.

    Others think the economy is in such poor shape that rates will have to remain low for a long time yet to help the economy and any major increase in rates will kill our exports hurting us even more.

    My personal opinion is that rates will rise sooner than people expect - maybe in the next month or two and i am tending to believe they could go higher quickly.

    This being the case i'm thinking of fixing half of the mortgage for 5 years @ 7.95% and the other half for 2 years @ 6.09% - therefore if rates explode i will be protected somewhat, however if rates stay low then i can still reap some of the rewards.....

    It's always a dilemma.

    My 2cents.

    I think inflation is going to be an 'issue' in 18mths - 2 yrs. (another commodity boom, soggy currencies due to 'quantitative easing' yudda yudda yudda.

    So interest rates will go up -- and note that the longer rates from banks are quite a bit higher than the 18 mth & 2yrs rates so the banks are thinking along the same lines.

    But it's all crystal ball so I've just turned over two mortgages and set them for 18 mths. This may sound insane if I really believe inflation is going to take off at the end of it - but here's the reasoning;

    If I can grab the best rates going, pay down as much as possible in that period AND inflation takes off - then it's a winning situation since high inflation reduces the real value of the 'rump' of the debt faster AND I've got a smaller residual 'rump' - so paying higher rates on it is not as painful as it could be.

    I hope it helps to see what 'others' are doing and their reasoning for their actions.

  5. #5
    Member foxysfolkfaced23's Avatar
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    Default

    I see that ASB has already put it rates up today

    3yr 7.45%
    4yr 7.95%
    5yr 8.30%

    I'm getting in contact with bank today to lock in a rate..........

  6. #6
    Guru peat's Avatar
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    yes bond prices for US 30 yr T bonds have been going down
    (meaning interest rates are rising)
    For clarity, nothing I say is advice....

  7. #7
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    Can soem of the more experienced investors here tell us what happened to rents during the last bout of hyperinflation we had?
    Disclaimer: Do not take my posts seriously. They are only opinions.

    AMR has sold all shares and is pursuing property.

  8. #8
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    Quote Originally Posted by AMR View Post
    Can soem of the more experienced investors here tell us what happened to rents during the last bout of hyperinflation we had?
    They kept rising in spite of a price freeze and rent freeze.

  9. #9
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    I've been worried about the prospects for rising rates for quite a while and locked in 5 years at 7.5%. I know its a big call given the discount you can get floating but my concern is that when rates rise, they'll rise fast. At 7.5% we're still comfortable and still below the average for the last 20 years.

    CT

  10. #10
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    why would the floating rate rise?
    its not like were in boom times..........
    infact the sad times have only just begun in new zealand.
    we dont manufacture much, our dairy produce is still slipping.
    we are still massivily in debt.
    peoples so call property wealth is still eroding.
    and there is a trainload of service provider employment yet to hit the wall.
    the nz$ is still high.
    and property is still over valued for the next generation of home owners.
    money is tight ...... not many borrowing, not many wanting to.
    a huge number of oldies lost their next eggs, and cant pass on inheratences to the young...........
    and the list goes on..........

    just because fixed rates are rising means nothing at all to the floating rate
    the problem is kiwis fixation on property speculation via fixed term loans.

  11. #11
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    Interesting question. LT rates sitting over 8% in NZ is a scam, given global scenario. I expect rates to stagnate at these levels, though short term who knows...

  12. #12
    Guru Dr_Who's Avatar
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    The banks are screwing us as much as they can, cos they can.

    The NZ economy is completely in the mercy of the banks and global institutions. Our dollar is too high, retail rates are too high, compliance cost too high... NZ economy is stuffed!
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt either directly by abolishing large slabs of it, or indirectly by inflating it away.

  13. #13
    Member foxysfolkfaced23's Avatar
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    ASB put rates up on Friday. ANZ/National followed suit on Saturday. Westpac has just moved overnight. Kiwibank/BNZ still holding firm.

    I fixed with Kiwibank yesterday - half for two years at 6.09%, half for 4 years at 7.40%.

    My personal thought is that banks are basically making the floating/short term rates look too attractive for most people to turn down BUT they (the banks) know that they will be able to get them at 8.0%+ when they come off in 1-2 years time.

    There is another reason/excuse that the banks push up interest rates and that is the cost of funding to the banks......which is the reason given for the latest round of rate hikes in Aussie - and hence the reason here too.

    Interest rates have been dramatically lowered to spur growth & avert a major recession - it won't be long before the rates are put back to normal levels.

    We rely on Australian banks for funding - where their house prices have not yet retreated and are still rising (big time bubble) - at least in NZ they came back 10%+ and have been pretty stagnant for 12-18 months - when Aussie rates rise/fall Kiwi rates are not far behind - so what happens in Aussie is important to us.

    http://business.smh.com.au/business/...0810-effh.html

    However it all depends on your situation of course - since i am just starting my mortgage i am happy with my strategy. Others who have only a few years to go will feel floating/short term is the best especially if they really nail the principal at low rates.

  14. #14
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    Default

    Quote Originally Posted by belgarion View Post
    My opinion is that rising i-rate will be a short-term phenominen that will catch out the fearful who will fix higher than they need ... long run there'll be little significant changes and possibly even a return to lower/lowish rates (below the long run norm) as the NZ economy recovers very slowly.
    Interesting theory. Would appear to be in disagreement with most economic commentators who suggest that the massive worldwide borrowing programmes by governments (including NZ) will place upward pressure on investor funds and therefore interest rates. A glance at T-bill rates in the USA shows increases of 1% plus for 10 and 15 year bonds despite no change to official fed rates.

    In NZ we have massive structural imbalances where our current account deficit is bloated by massive outflows to fund our debt based obsession with housing. Fitch have hinted at a credit rating downgrade. Any further shocks in the global financial markets may mean they carry through on the threat. Regardless of whether they do or don't bank funding costs are rising for 2 year plus rates.
    Last edited by Ptolemy; 12-08-2009 at 10:33 AM. Reason: typo

  15. #15
    Guru Dr_Who's Avatar
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    We spend too much and dont save enough, hence we rely on offshore capital for funding. It is as simple as that.

    Like a weakling in the playground, we are picked on by the bigger boys.
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt either directly by abolishing large slabs of it, or indirectly by inflating it away.

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